Source– The post is based on the article “Oxfam inequality report: Taxing the ‘obscenely’ wealthy may not be the right solution” published in The Indian Express on 23rd January 2023.
Syllabus: GS3- Indian economy and mobilisation of resources
Relevance– Inequality and taxation structure of India
News– The article explains the Oxfam “Survival of Richest report” and analyses its claims regarding the tax structure in India.
What are some main points contained in the Oxfam Survival of Richest report?
According to the report, there are now 166 billionaires in India. It is up from 106 in 2020. Wealth is concentrated among the top deciles. Top 30% accounts for 90% of the wealth.
Globally, 1% are estimated to have captured almost two-thirds of new wealth.
It argues for a wealth tax and higher taxes on corporates.
It also argues that indirect taxes are regressive. The paper says that the bottom 50% pays six times more indirect tax as a percentage of income as compared to the top 10%.
What are the issues regarding the claims put by the report?
The corporate tax cuts brought the statutory tax rate down from 30% to 25.17%.
The cost of revenue foregone due to this is estimated at Rs 1.03 lakh crore. However, it is not the equivalent of revenue that would have been realised had there been no incentive. The same revenue would not have been realised in its absence.
Further, the comparison of corporate tax collections is unfair as the simplified regime for corporate taxes was introduced after 2019.
The current income tax system exempts incomes up to Rs 5 lakh from tax. The GST rate structure places a higher burden on luxuries.
The upward trend in the GST collections post 2021, accompanied by higher retail sales of luxury goods, indicates that the tax may be progressive. It is despite the K-shaped recovery.
An indirect tax can be more efficient in a tax system where compliance in direct taxes is not broad-based. Therefore, the report underplays the importance of indirect taxes.
Even on direct taxes, India has implemented the surcharge on top incomes taking the marginal tax rate to 42.74%.
It is also important to inquire into the computations. It is estimated that the total wealth held by India’s richest is Rs 54.12 lakh crore.
But, there is no clarity regarding the amount of the assets counted as a part of private wealth or held in the form of trusts or companies.
Merely adding this to wealth does not make it taxable. The legal title may prohibit the authorities from levying such a tax.
A siloed approach to tax policy, with interlinkages between different taxes is not meaningful. In the past, India has used a wealth tax. But the collections were low. It was costly to implement it.
Everything is not fixed by taxes. The role of other macroeconomic policies, like low interest rates and regulatory interventions, should not be ignored.